India today is a hotbed of IT startups that sounds glamorous in the beginning but the scenes behind are actually ugly.
Not just that, several are failing.
Bengaluru in focus
Nearly a third of Bengaluru’s online food and grocery delivery companies have shut shop, as we know from data from startup tracking platform Tracxn.
The city is commonly known as the Silicon Valley of India.
However, this picture may have started to unravel.
As larger players consolidate their positions, they leave little room for their smaller counterparts to survive.
Out of 383 food and grocery delivery apps in Bengaluru, 129 have closed.
Biggies favored over the fledgling
For example, in the last week of November, a fruit delivery app, Juzi, shut operations citing “adverse business circumstances”.
The city has over 11,000 startups but the spotlight shines the most on the big ones, like Ola, Byju’s, Swiggy and others, who have captured significant market share in their respective sectors.
These have also managed to secure huge rounds of funding at billion-dollar valuations.
However, the pan-India figure reflects a wildly opposite situation.
Grim prospects
The number of startups across the country that have been forced to shut down operations has more than doubled since 2021.
Companies that are no longer operational in India in 2021 numbered 975.
This has more than doubled to 1996 in 2022 referring to technology companies that were founded in the last 10 years.
People deeply involved in the startup ecosystem said there are 10 times more $100-million valuation companies in India for every $500 million one, and 10 times more $50-million valuation companies for every $100 million company.
Expert’s take
“In India, the power-law of start-up scale has been out of whack for some time because a lot of VC/PE (venture capital/private equity) funding has been going only to the larger players.
We don’t have a sufficiently robust early-stage funding ecosystem.
The funding channels are also slowly drying up as we stare at another imminent global economic downturn”, Sharad Sharma, co-founder, iSPIRT Foundation, said.
The power law he was speaking about states that a few companies will achieve exponentially greater value than all others.
Need of the hour
Another blow to the smaller players is the fact that much of India’s VC funding comes in from overseas and it rarely finds its way into early-stage companies and continues to flow into larger companies.
Sharma opined, “We have to draw in local high-net-worth individuals, insurance companies, private companies which have large balance sheets, to invest in the early-stage ecosystem.
Only then will we be able to solve this problem.
Once this happens, our vulnerability to this ‘tourist’ capital, which comes in and goes out, will come down.”
“The current downturn is a call to action to address the issues that prevent a stronger rupee capital base forming for early-stage funding,” he added.
